Journal of Finance and Investment Analysis

The moderating role of firm characteristics on the relationship between free cash flows and financial performance of firms listed at the Nairobi securities exchange

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• Abstract

  This paper sought to find out the influence of firm characteristics on the relationship between free cash flows and firm financial performance. Specifically, the objectives of the study were two-fold: first, to establish the relationship between free cash flows and financial performance of firms listed at the NSE; and secondly, to determine the influence of firm characteristics on the relationship between free cash flows and financial performance of firms listed at the NSE. The firm characteristics considered in this study are firm size and age. The study used secondary panel data which was obtained from all firms listed at the NSE for the period 2006 to 2015. Regression analysis was employed in data analysis. Results indicate that free cash flows have a significant positive effect on financial performance; while firm characteristics have a negative significant moderating effect on the relationship between free cash flows and financial performance. The main academic contribution of the study is that free cash flows have a positive statistically significant effect on financial performance. The study recommends that firm managers, shareholders and practitioners should focus more on the need for firms to generate more FCF.

   

  JEL Classification numbers: G30, L25

  Keywords: Free cash flows, Firm characteristics, Moderation, Financial performance, Nairobi Securities Exchange.